“Millennium Development Holes”

An editorial in Nature criticizes the Millennium Development Goals for projecting a “pseudoscientific” image:

Every year, the UN rolls out reports with slick graphics, seemingly noting with precise scientific precision progress towards the goals. But the reports mask the fact that the quality of most of the underlying data sets is far from adequate. Moreover, the indicators often combine very different types of data, making aggregation and analysis of the deficient data even more complicated.

There are decent data for just a handful of indicators, such as child mortality, but for most of the 163 developing countries, many indicators do not even have two data points for the period 1990–2006. And few developing countries have any data for around 1990, the baseline year. It is impossible to estimate progress for most of the indicators over less than five years, and sparse poverty data can only be reliably compared over decades. To pretend that progress towards the 2015 goals can be accurately and continually measured is false.

[Hat tip: Ruth Levine at CGD]

Underworld Economics

Raymond Baker & Jennifer Nordin on dirty money:

This enormous disappearance of capital from poor countries—perhaps a cumulative $5 trillion in recent years—should be of keen interest to economists. Billions of dollars in foreign aid have flowed into developing countries over the last several decades—on average $50 to $70 billion a year. These countries, home to 80 percent of the world’s population, often have weak le- gal and administrative structures, large gangs of drug dealers and racketeers, and wealthy elites who want their money elsewhere. The estimated $500 billion in illicit outflows eviscerates foreign aid and contributes to deeper poverty for billions of people. Despite the impact of trillions of dollars of dirty money flowing out of poorer countries, we are still at step one: measuring it.

International flows of dirty money also have implications for the (mis)measurement of trade volumes and balances.

The Pros and Cons of Decoupling

The EU pays non-farmers not to farm:

The loophole allows investors to become classified officially as farmers and then buy the right to receive annual EU subsidies to cut agricultural production. Because the subsidies are decoupled from the land they relate to, investors do not need actually to own the ground they are claiming for or even go anywhere near it.

The profits to be made are enormous, with investors potentially increasing their capital nearly fivefold in 5 years.

Auctioneers and brokers who used to sell cattle and farm-land are now focusing their attention on selling the rights to receive European taxpayers’ money — known as entitlement trading — in what one described as a “ferocious” market with the rights to subsidies “flying off the shelf”.

Demand is outstripping supply by five to one, because the profits from investing in subsidies are up to ten times higher than putting the money in a bank. After making a one-off payment, the investor is entitled to receive from the taxpayer every year a cheque that typically amounts to a third of the original investment.

While it’s unfortunate that this nonsensical redistribution scheme and its accompanying rent-seeking are wasting EU taxpayers’ money, it also has its merits: The payments are completely decoupled from production and exporting activities, so the subsidies are not market-distorting and the WTO will have no objections!

King Cotton & the 2007 farm bill

Reuters:

Speaking after a two-day World Trade Organization (WTO) meeting on cotton, representatives of cotton producers said they believed the 2007 farm bill — an umbrella law that will set most U.S. agriculture policy for five years — could boost aid to American cotton farmers by up to 66 percent…

African governments and farmers blame cotton subsidies to producers in rich nations for flooding the market, driving down global prices and causing poor farmers to run at a loss.

Of course, Congress hasn’t written the 2007 farm bill yet, so these comments must refer to the USDA’s proposal, which means criticism may be premature.

This next paragraph strikes me as odd:

Brazil has already successfully attacked the U.S. cotton program, winning a landmark 2004 verdict at the WTO’s Dispute Settlement Body that caused the United States to repeal certain export and import subsidies on cotton. But other U.S. assistance programs remain in place.

Where can I get more info about US cotton import subsidies? I had never heard of them before, and I’m slightly skeptical of their existence, given that most search results are copies of the Reuters piece.

Check out the blog dedicated to the 2007 Farm Bill, which has details of the Senate and House Agriculture Committees’ upcoming activities.

SAFTA's troubles

The South Asian Free Trade Agreement is not enjoying smooth sailing — New Delhi has decided to unilaterally withdraw tariff concessions given to Islamabad because of Pakistan’s non-compliance with SAFTA provisions. Read the Khaleej Times story.

SAFTA's troubles

The South Asian Free Trade Agreement is not enjoying smooth sailing — New Delhi has decided to unilaterally withdraw tariff concessions given to Islamabad because of Pakistan’s non-compliance with SAFTA provisions. Read the Khaleej Times story.

SAFTA’s troubles

The South Asian Free Trade Agreement is not enjoying smooth sailing — New Delhi has decided to unilaterally withdraw tariff concessions given to Islamabad because of Pakistan’s non-compliance with SAFTA provisions. Read the Khaleej Times story.

Empirical Tests of Comparative Advantage

In Free Trade Under Fire, Douglas Irwin points to two examples of large exogenous trade policy shocks that allow us to calculate the static benefits promised by the theory of comparative advantage:

In 1859, a bit of gunboat diplomacy by Commodore Matthew Perry ended two centuries of Japanese autarky and exposed it to foreign trade. Japanese prices converged to world prices, so the country became an exporter of silk and tea while an importer of cotton and woolen goods. Estimates of these gains from trade are as high as nine percent. (Daniel Bernhofen & John Brown, “A Direct Test of the Theory of Comparative Advantage: The Case of Japan,” JPE 2004, pdf; “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan,” AER 2005)

In 1807, President Thomas Jefferson ordered an economic embargo to punish Britain for interfering with American ships on the high seas. This termination of trade raised the domestic price of imported goods by 33 percent and lowered the domestic price of exported goods by 27 percent. The static welfare loss was around five percent. (Douglas Irwin, “The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807–09,” RIE 2005)

Neat.